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To cut through some of this confusion surrounding bitcoin, we need to separate it into two components. On the one hand, you have bitcoin-the-token, a snippet of code which represents ownership of an electronic concept kind of like a virtual IOU. On the other hand, you have bitcoin-the-protocol, a distributed network that maintains a ledger of balances of bitcoin-the-token.
The system enables payments to be sent between users without passing through a central authority, like a bank or payment gateway. It is created and held electronically. Bitcoins arent printed, like dollars or euros theyre made by computers all around the world, using free software.
It was the very first instance of what we call cryptocurrencies, a growing strength class which shares several features of traditional currencies, together with verification based on cryptography.
A pseudonymous software programmer going by the name of Satoshi Nakamoto suggested bitcoin in 2008, within an electronic payment system based on mathematical proof. The idea was to produce a means of exchange, independent of any central authority, that could be transferred electronically in a secure, verifiable and immutable way.
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Bitcoin can be utilized to cover things electronically, if both parties are willing. In that sense, its similar to conventional dollars, euros, or yen, which can also be traded digitally.
Bitcoins most important characteristic is it is decentralized. No single institution controls the bitcoin network. It is maintained by a group of volunteer coders, and run through an open network of dedicated computers spread around the globe. This attracts individuals and groups who are uncomfortable with the control that banks or government institutions have over their money. .
Bitcoin solves the dual spending problem of electronic currencies (in which electronic assets can easily be copied and re-used) via an ingenious combination of cryptography and economic incentives. In electronic fiat currencies, this function is fulfilled by banks, which gives them control over the traditional system. With bitcoin, the integrity of these transactions is maintained by a distributed and open network, owned by no-one. .
Fiat currencies (dollars, euros, yen, etc.) have an unlimited supply central banks can issue as many as they want, and can try to manipulate a currencys value relative to others. Holders of this currency (and especially citizens with little alternative) keep the price.
While senders of traditional electronic payments are usually identified (for verification purposes, and to comply with anti-money laundering and other legislation), users of bitcoin in theory function in semi-anonymity. Since there's absolutely no central validator, users do not need to identify themselves when sending bitcoin to another user. When a transaction request is submitted, the protocol checks all prior transactions to confirm that the sender gets the necessary bitcoin as well as the authority to send them.
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In practice, each user is identified by the address of their wallet. Transactions can, with a little effort, be tracked this way. Additionally, law enforcement has developed methods to identify consumers if necessary.
Additionally, most exchanges are required by legislation to perform identity checks on their clients before they are allowed to buy or sell bitcoin, facilitating another manner that bitcoin utilization can be monitored. Since the network is transparent, the progress of a specific transaction is observable to all.
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This is because there's no central adjudicator that can say okay, return the money. If a transaction is recorded on the network, and if greater than an hour has passed, it's impossible to change.
While this may disquiet some, it does mean that any transaction on the bitcoin network cannot be tampered with.
The smallest unit of a bitcoin is called a satoshi. It's one hundred millionth of a bitcoin (0.00000001) at todays prices, roughly one hundredth of a cent. This could conceivably enable microtransactions that traditional electronic money cannot.
Read more to find out how bitcoin transactions are processed and how bitcoins are mined, what it can be used for, in addition to how you can purchase, sell and save your bitcoin. In addition, we explain a few alternatives to bitcoin, as well as how its underlying technology the blockchain works. .
If you want to know what is Bitcoin, how you can get it and how it can assist you, without floundering into technical details, this guide is for you. It will explain how the system operates, how you can use it to your gain, which scams to avoid. It will also direct you to sources that will help you shop and use your first pieces of digital currency.